/https://specials-images.forbesimg.com/imageserve/60ad83301d1c66797008b5b6/0x0.jpg)
Getty Images
When you retire, Social Security will likely be a significant portion of your retirement income. The Social Security cost-of-living adjustments (COLA) are announced annually and helps offset your loss of purchasing power due to inflation. The cost-of-living adjustment for Social Security could be the largest in over a decade. For the nearly 70 million people receiving Social Security benefits, this may help offset higher costs of items needed to survive during the coronavirus pandemic.
The Social Security COLA for the following year is generally announced in October and is based on current inflation. The Social Security COLA was just 1.3% in 2021, but benefits could increase by 4.7% next year. This would be the most significant Social Security cost-of-living adjustment since 2009 when there was an astounding 5.8% Social Security COLA. Before you start planning on spending your larger Social Security benefit, keep in mind there are several more months of data that could change the eventual Social Security COLA for 2022.
In 2021, the average Social Security benefit was just $1,543 per month. For those of you who are higher on the income scale, the maximum Social Security benefit was $3,148 per month at full retirement age in 2021. As the economy sprints out of the coronavirus recession, it is expected that inflation will lead to a larger Social Security COLA than we have seen in quite some time.
MORE FROM FORBESAn Easier Way To Pay Fewer Taxes In RetirementBy David Rae
Each year, the Social Security Administration (SSA) bases the cost-of-living adjustment (COLA) increase on the Department of Labor’s consumer price index (CPI) for urban wage earners and clerical workers. The CPI is meant to be used as a measure of inflation.
MORE FOR YOU
Retirees receiving Social Security will continue to feel pressure on their standard of living, even with a higher-than-average cost of living increase. Social Security benefits typically do not keep up with the everyday expenses retirees face as they age. We are talking about livings expenses like rent, food, transportation (including gas), and of course, health care and the astronomical amount of money people must pay for life-saving prescription drugs.
getty
More Social Security Taxes Coming in 2022?
For those of you still working and earning an income, you will likely also see an increase in the income subject to Social Security taxes in 2022. This year, your first $142,800 of earned income will get hit with Social Security payroll taxes for 2021. It is too early to know whether this number will increase again in 2022. President Biden ran on adding new Social Security taxes for earned incomes above $400,000. Time will tell if this is implemented in 2022 and if the additional taxes will also translate into potentially larger Social Security benefits for retirees.
There is never a better time than today to get on track for the secure retirement you deserve. As you can see, trying to live off Social Security alone will not allow most Americans to maintain their standard of living in retirement.
